Former Princeton Review owner settles U.S. fraud case

NEW YORK (Reuters) - Education Holdings 1 Inc, the former owner of the Princeton Review test-preparation business, agreed to pay up to $10 million to settle allegations it made false claims for tutoring services it did not provide.

The settlement, disclosed in court papers in federal court in New York, would conclude a civil lawsuit brought by the U.S. Justice Department under the False Claims Act.

As part of the settlement, Education Holdings admitted to engaging in fraudulent conduct, the Justice Department said.

"Every dollar wrongly taken in this case was taken from a child who was entitled to help in achieving academic success and through that a better life," Preet Bharara, the U.S. Attorney for Manhattan, said in a statement.

The settlement was approved Wednesday by U.S. District Judge Barbara Jones.

A spokeswoman for Education Holdings declined comment.

The Justice Department announced the lawsuit in May, two months after the company agreed to sell its test-prep unit to private-equity firm Charlesbank Capital Partners LLC for $33 million. As part of the deal, the company changed its name from Princeton Review Inc to Education Holdings 1 Inc.

From 2002 to 2010, Princeton Review Inc participated in a program providing after-school tutoring to students in underperforming schools in New York City, paid based on the number of students it tutored.

But the Justice Department said that from 2006 to 2010, when the city paid the company a total of $38 million, the Princeton Review's student attendance and invoices were "routinely falsified."

Some student signatures were forgeries, and at other times students were marked as present when their parents said they were not, the lawsuit said.

The lawsuit was filed in 2009 by a whistleblower who worked at the Princeton Review from 2006 to 2008 as an aide and later a site manager and sued on behalf of the federal government and New York State. The lawsuit was unsealed in May as the Justice Department moved to intervene in the case and file its own complaint.

Under the False Claims Act, whistleblowers can file lawsuits under seal on behalf of the government. Whistleblowers, or relators as they're called under the law, can typically receive 15 percent to 25 percent of any sum the government recovers.

The settlement papers refer to the whistleblower as Dana Smith, who will earn 20 percent of anything the government recovers.

"This was a case where Princeton Review used a program for disadvantaged children to line its own pockets," said Timothy McInnis, a lawyer for Smith. "Our client, the whistleblower, tried to resolve this internally, and when she raised issues, she was terminated."

Under the settlement, Education Holdings will pay the United States $200,000 in five business days and $800,000 following the sale of its one remaining business asset, the Justice Department said. It will pay another $9 million depending on the price garnered in that sale, the department said.

The case is U.S. v. The Princeton Review, Inc, U.S. District Court for the Southern District of New York, No. 09-6876.